PE borrowing for shareholder payouts shrinks in 2026

PE borrowing for shareholder payouts shrinks in 2026

Wed, September 2, 2026 at 10:20 PM GMT+3 2 min read

A financing mechanism that gained traction among private equity firms in recent years has cooled off in 2026. Fading optimism about the exit market could, however, spark a turnaround in the final months of the year.

Dividend recapitalizations, in which companies borrow money to pay dividends to shareholders, are down roughly 40% year-over-year, according to data from PitchBook-LCD.

Recaps financed through the US broadly syndicated loan market, by some distance the largest capital source for these loans, totaled $28.69 billion in the year through Sept. 2, down 39% from $47.4 billion over the same period in 2025.

There were $72.2 billion of dividend recaps in full-year 2025—the second-highest annual volume recorded.

The average size of a dividend recap in 2026 also compressed, to $541 million from $668 million a year earlier.

Many buyout managers entered 2026 expecting a more robust exit market, aided by a cut in interest rates, prompting them to prioritize borrowing to make add-on acquisitions over borrowing to pay dividends, according to several lenders.

Geopolitical tensions and a higher-for-longer rate path have dampened that optimism, however, leaving the conditions underpinning M&A in 2026 little changed from 2024 or 2025.

Meanwhile, the so-called SaaSpocalypse, which shook the software market in the first quarter of 2026, has made lenders more cautious about financing dividend recaps for issuers whose business models are likely to be negatively affected by AI.

The dividend recap closings this year are clustered in relatively AI-insulated sectors such as food, manufacturing and financial services, lenders say.

Golden State Foods, a food processor and distributor acquired by PE firm Lindsay Goldberg in 2024, issued $125 million in incremental term debt in late July to fund a distribution to its sponsor, its second dividend recap in less than 12 months, according to a person familiar with the matter. It issued an initial $275 million in September 2025.

The company's EBITDA had grown from the low $200 millions at the time of its acquisition to nearly $300 million at the time of the July transaction, giving it room to carry more debt. Net leverage after the July deal stood in the mid-4x range, roughly where it was set at the LBO, the person said.

Lindsay Goldberg did not wish to comment.

Looking ahead, some advisers think the slowdown may not persist through the end of the year, as a stalled M&A market prompts sponsors to seek alternative ways to generate liquidity for investors.

"Post-Labor Day, we are going to see a resurgence of dividend recap deals from firms that haven't successfully consummated a sale," said Stephanie McCann, who co-heads the global corporate finance group at law firm McDermott Will & Schulte.

This article originally appeared on PitchBook News